Incident: The company revealed that it recently received a bid notice worth 198 million yuan from Dongfang Electric Group Dongfang Boiler Co., Ltd. The winning bids included 400 tons of threaded pipes for power plant service in 2022; 982.5 tons of internal threaded pipes in Bohe; 9575 meters of stainless steel pipes prepared by the Power Station Service Division in February 2023 (Huoshan Project); 1,046 tons of domestic small pipes with single internal threaded pipes; Yiyang and Shenyang Huarun Thermal Power's domestic T91 and T92 small pipes of 1689.8 tons; strategic cooperation negotiations for domestic SUPER304H stainless steel pipes in 2023; domestic small pipes purchased 14,441 tons.
Leveraging the advantages of a complete product line, stainless steel pipes and alloy steel pipes go hand in hand. The company is the only domestic manufacturer of small-caliber seamless steel pipes that can produce a full range of small-caliber seamless steel pipes from carbon steel and alloy steel to stainless steel, with strong customer stickiness. The winning bid this time includes not only SUPER304H stainless steel, but also internal threaded pipes, T91, T92 and other types of alloy steel pipes. As high-end pressure-bearing and heat-resistant pipes in coal-fired power boilers, demand is strong in the context of a coal power restart.
The new plant is expected to operate at full capacity in 23Q2, adding 50,000 tons of high-end stainless steel and alloy steel production capacity. According to Shengde Xintai's investor relations activity record table on October 21, 2022, the new production line is expected to operate at full capacity in the second quarter. The design capacity of stainless steel and alloy steel for the new production line is 50,000 tons, of which 30,000 tons are super stainless steel, and 20,000 tons are T91 and T92 high-alloy steels.
The entry threshold for high-end alloy steel is high, and the elasticity of price increases cannot be ignored. According to the company's 2022 semi-annual report, steel grades such as T91 alloy steel, T92 alloy steel, stainless steel, etc., have strict quality requirements, high technical content, and a more orderly competitive pattern. Furthermore, according to Changbao Co., Ltd.'s investor relations activity record sheet on January 11, 2023, prices of products such as T91 and T92 increased significantly as demand growth expectations for boiler tubes strengthened and prices of raw materials such as ferromolybdenum increased.
Considering the sharp increase in new approvals and commencement of coal power since the second half of last year, we raised the company's production and sales targets and predicted that the company's earnings per share for 2022-2024 would be 0.67, 2.28, and 3.90 yuan respectively (originally 0.65, 1.17, and 1.61 yuan). Using DCF valuation, the company was given a target price of 50.58 yuan to maintain the purchase rating.
Risk warning
The growth rate of the alloy steel and stainless steel business fell short of expectations, the risk of large fluctuations in raw material prices, the risk of concentration of sales customers, the slowdown in macroeconomic growth, the risk of repeated COVID-19 at home and abroad, and changes in assumptions affecting profit forecasts